Every dollar your business spends needs a "home" — a category that describes what it was for. This isn't just neat filing. It matters for three real reasons:

It's not just about taxes, either. Filing something in the "wrong" category rarely changes your tax bill by much — but it's the difference between financial statements you can actually trust and ones that are quietly misleading you.

Before sorting into specific categories, ask one question:

Is this cost tied directly to making or delivering what I sell — or is it just part of running the business day-to-day?

Example: A candle maker's wax and wicks are COGS. Their Instagram ads are an Expense.

Consistency matters more than perfection. If you're torn between two reasonable categories (like Canva under Advertising vs. Software & Subscriptions), pick one and stick with it all year. Switching back and forth mid-year is what actually makes your books messy — not which specific bucket you chose.

If you're a sole proprietor (the most common and simplest setup — one owner, no separate legal entity), a few things are unique to you:

Here's what each common category actually means, in plain language — plus the traps people fall into.

Marketing, promotions, and anything spent getting your name out there. Straightforward — this is your "getting customers" bucket.

Costs of using a vehicle for business — gas, insurance, maintenance, mileage. Track mileage no matter what, even if you deduct actual costs instead. Leasing a vehicle goes under Rent or Lease, not here.

Sales commissions, referral fees, affiliate payouts, marketplace/platform fees (like Etsy or Amazon seller fees). Bank fees and credit card processing do not go here — those are Other Expenses.

Courses, workshops, certifications, or conferences that sharpen skills you already use in your current business. If it's qualifying you for a brand-new profession instead, it's not deductible — the line is "getting better at what you already do" versus "qualifying for something new."

People you pay who aren't employees and aren't producing your actual product/service — think a virtual assistant or admin freelancer. If a contractor is a specialist (lawyer, accountant, designer), that's Legal & Professional Services instead. Get a completed W-9 from every contractor before you pay them, and set up a separate vendor record for each one — it makes issuing 1099-NECs in January far easier.

The idea that big-ticket items (equipment, vehicles, buildings) lose value over time, and you deduct that loss gradually instead of all at once. Your tax preparer usually handles the calculation — you just need the purchase records. This connects closely to Equipment & Technology below: the cost of an item often determines whether it's depreciated over time or expensed outright.

Health or life/disability insurance you provide to employees. Retirement contributions have their own category. This does not include anything for the owner.

Tangible items you use to do the job — laptop, tablet, monitors, printer, certain office furniture. Depending on the cost, a purchase may need to be capitalized (treated as an asset on the balance sheet) instead of expensed all at once. Flag any big equipment purchases for your bookkeeper or accountant so they can tell you how it should be recorded.

Business liability, property, professional liability, workers' comp. Common types include general liability, errors & omissions (E&O), commercial property, and increasingly, cybersecurity insurance. Vehicle insurance, health insurance, and life/disability insurance all live in their own categories — don't lump them in here.

Interest paid on business loans or credit. Mortgage interest is tracked separately from other interest. A loan payment usually includes both principal (not deductible) and interest (deductible) — check the amortization schedule from your lender to see the split.

Specialized help: lawyers, accountants, IT consultants, designers. Routine admin work doesn't count, and anything tied directly to producing your product goes under COGS instead. As with contractors, get a W-9 from these vendors too, so you (and your accountant) can figure out whether they'll need a 1099.

Fees charged by a payment processor for accepting credit cards or online payments — think Stripe, Square, or PayPal. Some bookkeepers fold these into Other Expenses instead — either works, just stay consistent.

General costs of running the office — subscriptions for office/business tools, small equipment, furniture.

Retirement contributions for employees. As the owner, your own retirement contributions are tracked separately and aren't a business deduction the same way.

Two flavors: (1) vehicles, machinery, and equipment leases, and (2) office or property rent. Keep these two grouped separately from each other. If you run your business from home, don't put home costs here — ask your tax preparer about tracking home office expenses instead, since those follow different rules.

Fixing or upkeeping property/equipment. Depending on the size of the repair, it may need to be depreciated instead of expensed all at once — worth flagging big repairs to your bookkeeper.

Digital tools that help run the business — QuickBooks or Xero, your CRM, project management tools, team communication apps, scheduling software, Google Workspace or Microsoft 365. Marketing-adjacent tools (like Canva or an email platform) can reasonably go here or under Advertising — there's no universal right answer, just pick one and stay consistent.

Consumables for general office use — paper, pens, coffee. If the item goes into what you sell, it's COGS instead.

Real estate tax, personal property tax, sales tax you paid (not collected from customers), your share of employment taxes, licensing and regulatory fees. Penalties and fines don't belong here — track those under Other Expenses, and know they're not deductible.

Travel and meals are tracked as two separate categories. Travel only counts once you've left your business's "tax home" long enough to need sleep or rest, for a genuine business purpose — meeting a client, a conference, or training qualifies; checking email on a beach vacation doesn't. Meals while traveling are only 50% deductible. Jot down the business purpose of each trip so you can back up the expense later. An occasional office-wide meal (holiday party, team lunch) is treated as an Office Expense instead of a regular meal.

Electricity, water, internet, phone. Worth splitting out by type if you want visibility into where costs are rising.

Pay for employees not directly producing your product/service (e.g., admin staff). Contractors don't belong here — see Contract Labor.

Anything that keeps your website online, functional, or on-brand — hosting, domain registration, website builders, a purchased template. Custom web design work done by a contractor is usually better tracked under Contract Labor instead.

The true catch-all for legitimate but uncategorized costs: bank/processing fees, job-related training, shipping (not to a customer), subscriptions tied to your industry, uniforms, cleaning, non-deductible penalties (still track them, just note they're non-deductible).

Things specific to you as the owner rather than the business itself: your health insurance, your life/disability insurance, your retirement contributions, self-employment tax. These are handled differently than employee versions of the same costs.

A few categories above (Equipment & Technology, Depreciation) mention that bigger purchases sometimes need to be "capitalized" instead of expensed. Here's what that actually means in practice.

A good rule of thumb: anything over $2,500 is likely a fixed asset, not a straight expense.

A fixed asset is something with real, lasting value that the business will keep using for more than a year — equipment, machinery, furniture, vehicles, and similar purchases. Instead of writing off the full cost the moment you buy it, it goes on the balance sheet as an asset, and its cost is deducted gradually over time through depreciation.

Why this matters:

Quick gut-check: if it costs more than about $2,500 and you'll still be using it a year from now, treat it as a fixed asset question first — don't just drop it into an expense category and move on.

Best practice: reach out to your bookkeeper before recording it. Fixed assets need to be set up correctly from the start (the right asset account, the right depreciation method), and fixing a misclassified purchase later is a lot more work than getting a quick answer up front. A five-minute message to your bookkeeper before you record a big purchase can save a lot of cleanup down the road.

This one comes up constantly, so it gets its own section: a refund is not income.

It's tempting to record money coming back into the business as income, since it's landing in the bank account the same way a sale would. But a refund isn't new revenue — it's undoing a cost that was already recorded. Recording it as income overstates both your revenue and your tax liability, and it muddies your financial statements.

The rule: a refund goes back into the same category the original expense was in.

Think of it as the expense "un-happening," partially or fully — not as a new sale. The category should match, dollar for dollar, whatever it's reversing.

One exception to flag: if you're refunding a customer for something they bought from you, that's different — that reduces your actual revenue/sales, not an expense category. This section is specifically about refunds you receive from a vendor, supplier, or service you paid for.

When you're not sure where something goes, run through this:

Knowing the categories is half the battle — here's where they live in QBO:

This guide is for general understanding — always check with your bookkeeper or tax preparer on anything specific to your situation.